What Is a TSP Annuity and How Does It Work?

A Thrift Savings Plan (TSP) annuity offers federal employees and uniformed service members a guaranteed income stream in retirement. This withdrawal option allows individuals to convert a portion or all of their TSP savings into predictable payments. It provides a consistent income, helping retirees budget for ongoing expenses.

Understanding the TSP Annuity

A TSP annuity converts a participant’s account balance into regular, guaranteed payments, often for life. MetLife, a third-party commercial provider, handles this conversion. This arrangement provides predictable retirement income, helping to mitigate the risk of outliving savings. Once funds purchase an annuity, the decision is generally irrevocable.

The minimum amount to purchase a TSP annuity is $3,500. This minimum applies separately if a participant has both traditional and Roth TSP balances. The annuity provides secure income by shifting investment risk from the individual to the insurance company, offering certainty in retirement income.

Annuity Features and Payment Options

TSP annuities offer various features and payment options. Primary payment options include a single life annuity, which provides monthly payments solely to the participant for their lifetime. Alternatively, a joint life annuity provides payments based on two lives, typically the participant and a spouse. For joint life annuities, participants can choose a 50% or 100% survivor benefit, determining the percentage of the payment that continues to the survivor after the first annuitant’s death.

Additional features can be selected to enhance the annuity’s benefits. A cash refund feature ensures that if the annuitant (and joint annuitant, if applicable) dies before receiving payments equal to the purchase price, the remaining balance is paid as a lump sum to a designated beneficiary. Another option is the 10-year certain feature, which guarantees payments for at least 10 years; if the annuitant dies before this period, payments continue to the beneficiary for the remainder of the 10 years.

Participants also choose between level or increasing payments. Level payments maintain the same monthly amount throughout the annuity’s duration. Increasing payments start lower but increase annually by a set percentage to help address inflation. The amount of the monthly annuity payment is influenced by several factors, including the amount of TSP funds used, the annuitant’s age (and joint annuitant’s age), the chosen annuity options, and the prevailing interest rate index at the time of purchase.

The Annuity Issuance Process

Once a TSP participant elects to purchase an annuity and finalizes their chosen options, the process for issuance begins. The TSP transfers the designated funds directly to its commercial annuity provider, MetLife. This transfer typically occurs within five business days of the annuity request being processed. MetLife then assumes responsibility for issuing and managing the annuity payments directly to the participant.

Payments are typically disbursed on a monthly basis, providing a consistent income stream. Upon the successful transfer of funds and establishment of the annuity, MetLife sends the annuitant a “Welcome Letter” and an annuity certificate, confirming the terms and details of the newly purchased annuity. The initial monthly annuity payment is generally received approximately 30 days after the annuity’s purchase. After the annuity is purchased and funds leave the TSP account, all subsequent communications regarding the annuity are handled directly with the annuity provider, MetLife, rather than the TSP.